Oil prices drop on Mideast cease-fire

 NEW YORK (AFX) – Oil prices fell as much as $1.75 a barrel Monday as a cease-fire began in Lebanon and investors responded to news that BP expects to maintain half of its production at a large oil field in Alaska despite a pipeline leak.

Light sweet crude for September delivery fell 82 cents to settle at $73.53 a barrel in electronic trading on the New York Mercantile Exchange. September Brent at London’s ICE Futures exchange slipped further to settle at $74.30 a barrel, down $1.33.

"News of the U.N.-negotiated cease-fire in the Middle East and the announcement by BP that the western segment of the Prudhoe Bay field will resume production has buoyed the market," said Paul J. Harris, an analyst at Bank of Ireland Global Markets in Dublin.

Prices dipped as low as $72.60 during trading before a mild turnaround.

"We got into a bit of an oversold position earlier, although it’s not much of a bounce back considering how much prices have fallen recently," said Raymond Mazzeo, vice president at Energy Merchant LLC. "It’s still a bearish market."

The cease-fire between Israel and Lebanon’s Hezbollah militants took effect early Monday, ending a month of violence that has killed more than 900 people, devastating much of southern Lebanon and forcing hundreds of thousands of Israelis into bomb shelters.

The market had worried that the conflict might threaten world oil supplies if it spilled into other countries in the region, particularly Iran, OPEC’s No. 2 oil producer and a backer of Hezbollah. Those fears raised crude prices to a record $78.40 a barrel on July 14, two days after the fighting started.

The other positive market development came late Friday when BP PLC announced it would keep one side of the Prudhoe Bay oil field open as it replaces corroded pipes, enabling it to funnel up to half its normal output. BP had previously said it would have to completely shut down the nation’s largest oil field after discovering a leak nearly a week ago.

Prices fluctuated widely last week, soaring after BP’s initial announcement, then dropping back amid speculation that a foiled terrorist plot against trans-Atlantic flights might dampen jet fuel demand and consumer confidence.

"I’m not convinced that the drop-off in oil prices is anything more than a correction of the recent uptrend," said Tom Bentz, an analyst at BNP Paribas Commodity Futures in New York. "When the market hits $70 to $71 a barrel, traders will start buying again."

Prices remain supported by the standoff between the United Nations and Iran over its nuclear program as well as supply disruptions in Nigeria due to civil unrest. Three Filipino oil workers taken hostage in southern Nigeria were released early Monday, hours after witnesses said a new kidnapping occurred at a nightclub as gun battles broke out throughout the country’s oil hub of Port Harcourt.

Oil traders are also watching weather patterns for potential hurricanes that could strike Gulf of Mexico coast refineries, as well as signals for where fuel demand is headed.

Gasoline futures also fell Monday, dropping 7.38 cents to settle at $1.9905 a gallon. The decline comes after Goldman Sachs said last week that the remaining unleaded gasoline positions in its Goldman Sachs Commodity Index would not roll into Reformulated Gasoline Blendstock for Oxygen Blending, or RBOB.

"Traders seem to have avoided gas since the announcement," said Phil Flynn, a senior market analyst at Alaron Trading Corp. in Chicago. "It created more pressure, causing the gas contract to be unusually weak."

In other Nymex trading, heating oil futures fell 2.59 cents to $2.0147 a gallon, while natural gas futures settled at $6.913 per 1,000 cubic feet, down 35.6 cents.